• Friday, June 21, 2024
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2021 fails to meet manufacturers’ expectations

Why Nigerian manufacturers are uncompetitive

The year 2021 started with high hopes especially for manufacturers as they expected a rebound from the impact of the COVID-19 pandemic as well as the active participation in the African Continental Free Trade Area (AfCFTA) agreement, which kicked off in January.

Unfortunately, things didn’t go as planned because inherent challenges further intensified, while different policies and actions adverse to business activities and trade policies sprung up locally, regionally and globally.

Okhai Ehimigbai, export executive at Aarti Steel, said the year did not go as expected as challenges intensified and worsened the manufacturers’ plight.

Many manufacturers were forced to retrench workers as they could not cope with the rising cost, he said, and some companies suspended operations.

“This year was not a good year as we had expected; in fact, we went from frying pan to fire because as challenges intensified, we managed to produce but there was poor demand for goods,” he said.

Read Also: Low capacity utilisation limiting manufacturers’ profits

He noted that business owners in Nigeria’s manufacturing sector continued their struggle with numerous challenges including access to foreign exchange, exchange rate depreciation, high inflationary pressures, crisis at the ports, high cost of government-generated electricity and alternative provisions, and insecurity as the most critical challenges for businesses.

From the first quarter to the third quarter of the year, the manufacturing GDP performed optimally, achieving 3.4 percent, 3.49 percent, and 4.29 percent, respectively, but experts however faulted these figures, stating that it did not reflect realities in the sector.

“There is no recorded high level of economic activities in the sector that would justify such a growth rate, as manufacturers are currently experiencing the rising cost of manufacturing inputs,” Segun Ajayi-Kadir, director-general, Manufacturers Association of Nigeria (MAN), said.

Manufacturers during the year experienced higher production costs due to issues around cuts in international supply, scarcity of raw materials, unfriendly exchange rate, FX scarcity, etc.

This forced manufacturers to source for inputs locally, which also was a struggle due to rising insecurity, bad roads, and poor infrastructure to preserve raw materials, etc.

This discouraged production activities as cost pressure intensified without an outlet, as consumers’ purchasing power declined.

MAN CEOs Confidence Index (MCCI) for the second quarter of 2021 showed that between April and June, production and distribution costs increased by 21 percent, manufacturing investment declined by 15 percent, capacity utilisation volume of production and sales volume declined by 8 percent as well.

Also, in June 2021, a transit duty was imposed by Benin Republic on goods on transit passing through the country by road, which is estimated at an average of N9 million per truck. This, according to experts, significantly hurt trade across the West African sub-region.

These challenges and more also damped efforts to participate in the ongoing AfCFTA, as Nigerian manufacturers lacked the ability to compete with other countries, especially electricity supply and right policies.

Major highlights of the year

Closure/suspension of businesses: Although numbers have not been stated officially, a lot of manufacturing firms were forced to shut down in 2021, while some suspended operations as the weight of challenges enveloped them.

Ehimagbai told BusinessDay that a lot of manufacturing firms in Ota, Ogun State, closed down as they could not continue operations, just a part of many others across the country.

Some companies expanded production: Constantly-changing consumer preferences, environmental and global conditions forced some manufacturers to rethink business strategies, refine goods produced and services rendered in order to meet changing demand.

Seven-Up Bottling Company, manufacturer of beverages and carbonated soft drinks, commenced the production of hand sanitizers, dish-washing soap, medicated soaps, etc.

Hello Products Limited, maker and distributor of personal care items under its Tetmosol brand, spread its tentacles into the production of insecticides, liquid antiseptic and hand sanitizers.

Mergers & acquisitions: The manufacturing sector also witnessed the commencement of some merger and acquisition deals, which are yet to be finalised, such as the acquisition of 71.69 percent of Honeywell Group Limited stake worth N80 billion by the Flour Mills of Nigeria plc.

Similarly, Moroccan mattress maker of Dolidol, backed by African private equity firm Development Partners International (DPI) signed a deal to acquire Mouka, a Nigerian manufacturer of mattresses and pillows for $60 million.

According to experts, the sector recorded mergers and acquisitions due to the struggle with inherent challenges affecting productivity and revenue. In addition, consumers’ loyalty shifted to more essential items and products they could afford, which affected the volume of sales.

However, for the big players, experts say the M&A deals aimed to foster expansion and also position companies strategically in participating under the AfCFTA.

Adoption of cleaner energy: Manufacturers increased the adoption of cleaner energy as companies like Nigerian Breweries commissioned a 666.3kWp solar power plant to power its Ibadan brewery. Also, Nigerian Bottling Company commenced the transition of four of its manufacturing plants in Maiduguri, Kano, Asejire and Abuja to renewable energy sources through the installation of solar power infrastructure, while other firms make plans to follow suit.